CoreCivic Inc (CXW) 2016 Q2 法說會逐字稿

Good morning. My name is Keith and I will be your conference operator. As a reminder, this call is being recorded. At this time, I'd like to welcome you to the Corrections Corporation of America's second quarter 2016 financial results conference call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to Cameron Hopewell, CCA's Managing Director of Investor Relations. Please go ahead, sir.

Thanks, Keith. Good morning, ladies and gentlemen, and thank you for joining us. Participating on today's call are Damon Hininger, President and Chief Executive Officer; and David Garfinkle, Chief Financial Officer. During today's call, all remarks will include forward-looking statements pursuant to the Safe Harbor provisions of the Private Securities and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors including those identified in our second quarter 2016 earnings release and in our Securities and Exchange Commission filings including Forms 10-K, 10-Q, and 8-K reports. You are also cautioned that any forward-looking statements reflect management's current views only and that the Company undertakes no obligation to revise or update such statements in the future. This call will include a discussion of non-GAAP measures. A reconciliation of the most comparable GAAP measurement is provided in our corresponding earnings release and included in the supplemental financial data on the Investors section of our website at www.cca.com.

With that, it's my pleasure to turn the call over to our President and CEO, Damon Hininger.

Thanks, Cameron. And good morning to everyone joining our call today. Also joining us is Brian Hammonds, our VP of Finance. CCA is the leading provider of correctional, detention, and community corrections real estate and services in the United States. We collaborate with our government partners to provide flexible, timely, and cost effective solutions to address their unique needs. At the core of these needs are mission critical real estate assets that require design and construction management expertise as well as significant capital investment over a multi-year construction period. We provide these services to three departments within the federal government; the Federal Bureau of Prisons, the United States Marshals Service, and Immigration and Customs Enforcement; as well as many states including the District of Columbia and a handful of local municipalities.

There are many common themes facing government operated correctional systems including significant deferred maintenance on existing prison infrastructure due to budget limitations or shortfalls; a lack of funding for new prison development necessary to replace existing government owned facilities that have reached the end of their life cycle or a lack of funding to add additional capacity to alleviate overcrowding in their existing facilities as a result of population growth; the need for additional resources to provide offenders with academic, vocational, and other appropriate development and rehabilitative opportunities throughout their period of incarceration; and the need to expand community base reentry services offered to offenders reaching the end of their sentences and returning to their communities, which are often proven to reduce the rate of recidivism.

We are well positioned to be the ideal partner for governments that are actively addressing any or all of these themes in their correctional system. CCA's existing facility portfolio is modern and operationally efficient allowing our government partners the opportunity to lower their operating expenses when compared to relatively older and less efficient government owned facilities.

Partnering with us also enables customers to avoid the significant upfront capital expenditures required to develop a new facility. CCA has industry leading experience in the siting, design, and construction of correctional and detention facilities having designed and built more capacity in the last decade than any other organization, public or private.

And additionally, our portfolio of currently idle or available beds offer our government partners the opportunity to address current capacity needs without the lead time required for a new construction project, which can be as little as two to three years but is often much longer in the case of government led construction projects. Many government owned facilities from the federal level down to the local municipalities have reached or are approaching the end of their useful life cycle. These facilities are expensive to maintain, have designs resulting in inefficient staffing patterns, and lack modern security technology that improve facility safety and security. Each of these elements result in an unnecessary waste of taxpayer dollars. Additionally, many governmental owned facilities are not on a coordinated maintenance program resulting in a need for significant deferred maintenance investments in the future.

These infrastructure investments are not insignificant and in many cases represent a multi-billion dollar problem for individual states and millions at the local level. CCA provides a compelling value proposition to meet these challenges. Whether it's a full service solution or a design, build, and lease opportunity; we are the ideal partner for governments. Our partners are also in need of additional resources to provide meaningful reentry programming to prepare their thinner populations to return to their communities. While CCA has always been committed to offer extensive programmatic and rehabilitative services focused on reentry in our correctional and detention facilities, we have also significantly expanded our capabilities to provide community based corrections and residential reentry services through our recent acquisitions.

CCA is the second largest owner and operator of residential reentry services in the United States and we are strategically pursuing additional investments to further grow in this area. In the second quarter, we continued to execute this strategy as we closed two acquisitions adding eight facilities and more than 700 beds to our portfolio. We expect to make additional investments in our residential reentry platform and have developed a substantial pipeline of acquisition opportunities. These acquisitions position us well to diversify our sources of cash flow and to generate future growth as our government partners have expressed a growing need for these facilities and the services they offer. Our strategy for cash flow and funds from operation growth is focused on three specific areas.

Owning and operating correctional facilities and detention facilities, the model that represents the majority of our current portfolio and has been the primary driver of growth through our 33-year history. Second, real estateonly solutions where CCA provides mission critical real estate assets leased by government organizations. And finally, expanding our residential reentry facility portfolio through acquisitions either owned and managed or owned and leased to third-party operators and increasing the occupancy of existing facilities. In addition to the two acquisitions completed during the second quarter, we have recently received contract awards and are activating new facilities in all three of these growth areas, which supports our view of each of them representing a meaningful avenue for future growth. Beginning with owned and managed facilities, we are currently in the process of activating two new facilities.

First, we are currently expanding our Red Rock Correctional Center in Arizona to 2,024 beds adding approximately 400 beds, which is scheduled for completion in the fourth quarter of 2016. As the existing facility has nearly 600 beds occupied under our pre-existing 1,000 bed contract, we began receiving inmates under a new 1,000 bed contract with the State of Arizona in July while the expansion construction is ongoing. As of today, we are housing 1,060 offenders at the facility. Upon completion of this $35 million to $38 million expansion, CCA will be under contract for a total of 2,000 beds with an occupancy guarantee of 90%. Additionally, we are in the process of ramping up operations at our Trousdale Turner Correctional Center, a 2,552 bed facility in Tennessee which opened in January.

In May we made the decision to temporarily pause the ramp of the inmate populations in collaboration with the Tennessee Department of Corrections pushing the expected completion of the ramp schedule from the end of the second quarter into the third quarter. A safe and secure operational ramp is our Number 1 priority and we resumed the ramp of the inmate populations only after we were satisfied that these priorities would be met. As of today, we are housing 1,972 offenders at this facility. In New Mexico during the second quarter, we were awarded a new contract as a successful responder to an RFP issued by the state. Due to changing partner needs, the inmate population at our New Mexico Women's Correctional Facility will be transitioned to a male population in the coming months. To reflect the change of the facility's mission, it has been renamed the Northwest New Mexico Correctional Center.

The new contract for the male population has a heavy programmatic focus on a center reentry, which is further affirmation of the high quality residential reentry service offering that CCA can provide. As for real estate only solutions, in May we successfully negotiated a lease with the State of Oklahoma for our North Fork Correctional Facility, which had been idled in November 2015 following the reduction in California's utilization of out-of-state beds. At 2,400 beds, North Fork was our largest vacant facility in our portfolio. The initial lease term is five years and the average annual rent during the initial term is $7.3 million including annual rent in the fifth year of $12 million. The lease agreement includes unlimited two-year renewal options following the initial term, which will be based on the rent during the fifth year plus an adjustment for CPI.

Given the state's significant budget shortfalls due in large part to the persistent downturn in the oil and gas industry and its impact on the state's economy, we worked with the state to develop a flexible solution which allowed the lease agreement to be budget neutral in the state's current fiscal year that began on July 1 while the Department of Corrections utilizes the new capacity to realign their inmate populations and close older inefficient facilities. In addition, we recently signed an extension of our contracts for the state for our owned and managed Cimarron and Davis Correctional Facilities, which have two one-year renewal options remaining; and our three Oklahoma residential facilities through June 30, 2017. We are proud of our longstanding and growing partnership with the State of Oklahoma and will pursue additional opportunities should they arise.

Staying with real estate only solutions, during the quarter we also announced a lease extension with California Department of Corrections and Rehabilitation for our California city Correctional Center through November 30, 2020 with unlimited two-year renewal options, which is indicative of the state's ongoing need for this type of in-state capacity solutions we can provide through this real estate only model. We also had multiple exciting developments in our residential reentry portfolio during the second quarter. In early April we acquired CMI or Correctional Management Incorporated, a residential reentry service provider owning seven facilities representing 605 beds in Colorado, which we discussed on our first quarter conference call in May. In June we acquired a 112-bed residential reentry facility in Long Beach, California that is triple-net leased to community education centers to revive residential reentry services for the State of California.

Following these acquisitions, CCA owns or controls 25 residential reentry facilities in six states representing approximately 5,000 beds. Subsequent to the end of the second quarter, we received a new 120-bed contract award from California Department of Corrections and Rehabilitation at our 120-bed CAI - Boston Avenue residential reentry facility that commenced on August 1. In anticipation of this new contract from California, we had previously consolidated resident populations from the Federal Bureau of Prisons that had been housed at the CAI - Boston Avenue facility into our 483-bed CAI - Ocean View facility. The Ocean View facility continues to house resident populations from the BOP and from the County of San Diego. The average compensated occupancy of the facility was only 65% during the first half of 2016. So, the decision to consolidate BOP populations should lead to improved occupancy at the Ocean View facility.

When coupled with the new contract at CAI - Boston Avenue, occupancy across the two CAI facilities are expected to increase and have a very positive impact to the cash flows generated under previous contractual arrangements. As you can see from recent developments, we are executing on all three primary growth strategies; owned and managed facility growth, increasing the number of leased facilities providing real estate only solutions, and expanding our residential reentry platform. Each area for growth provides an opportunity for CCA to deliver a customized value proposition to address specific customer needs while drawing on our core areas of expertise. We are having a number of discussions with potential partners that are looking for additional bed capacity both in state and out of state or are looking to replace dated capacity and we are well positioned to deliver meaningful solutions that will drive our future growth.

Now before I turn the call over to Dave for a financial overview, I would like to provide a brief update on other recent business developments. Last week we received word from the BOP that they intend not to renew our contract at the 1,129-bed Cibola County Correctional Center, which is set to expire on September 30 of 2016. Of course we are disappointed with the Bureau's decision not to renew, but the federal inmate populations have declined by nearly 25,000 in the last three years resulting in reduced overcrowding in BOP operated facilities. Today the BOP is operating at approximately 117% of their rate of capacity, down from roughly 140% three years ago. We are committed to work with the BOP through the transition at Cibola and continue to operate three additional correctional facilities on behalf of the BOP.

Following the transfer of populations, we will idle the facility. We are actively marketing this facility and believe there are multiple potential partners that could utilize the facility to address needs within their correctional systems. I would also like to provide an update on developments at our South Texas Family Residential Center. In the second quarter, Immigration and Customs Enforcement or ICE solicited proposals for one or more family residential centers for the housing and care of families. At the same time, ICE engaged CCA to consider modifying the contract for services currently performed at the South Texas Family Residential Center with the intent of identifying cost reduction opportunities for ICE for both the various policy changes that have occurred since September of 2014, but also with the operation graduating from an emergency short-term requirement to a longer-term need.

As a reminder for our investors, ICE approached us in the summer of 2014 to deal with the unprecedented crisis that they were facing on the southern border with families from Central America crossing the US border. So like FEMA dealing with the natural disaster and working with the private sector, we were asked by ICE to get a residential center that was safe, humane, and appropriate for these families up and running within 90 days. And we did that with a major investment of resources for this high risk complex operation that must comply with significant amount of standards and regulations. The complexity of risk and compliance of various standards haven't changed for this center, but there have been some adjustments to the operational requirements and also the mercy nature of the operation has dissipated that makes it possible for cost savings.

So, that is where we find ourself today and we take it as a positive sign for the continued need of this center by ICE engaging us now. As mentioned in the press release, contract discussions with ICE are in the preliminary stages and therefore we are not in a position to comment on the potential impact of any modification to the existing contract. However, we continue to receive positive feedback from ICE on the quality of the operations taking place at the center and we are well positioned to provide a compelling proposal given our strong operational track record and because the center is the only of its kind in the United States to be specifically designed for this unique mission. I'd also like to provide an update on the litigation between the government and attorneys representing a class of minors in ICE custody including minors at our residential enter in South Texas related to a 1997 settlement agreement commonly referred to as the Flores Settlement Agreement.

In July, the Ninth Circuit Court of Appeals ruled against most of the government's appeal seeking to overturn the lower court's ruling that the stipulations set forth in the Flores Settlement Agreement should apply to ICE held minors in family residential centers. ICE has yet to publicly comment on their legal strategy related to this matter. However, there continue to be a multiple avenues available to ICE to seek review of the court's decision. But one important point on this recent development with this case. This ruling by no means prohibits ICE from the housing of families at our South Texas Family Residential Center. It does require South Texas operation has to comply with the Flores Settlement Agreement, which during an influx of minors at the southern border requires that ICE release minors expeditiously as possible.

It's important to keep in mind that when ICE takes a minor whether accompanied or not into custody, ICE has important legal processes it has to complete to ensure the safety to both the minor and the public. These processing steps take time. We worked closely with ICE to streamline the operations so as to allow for shorter stays by families. And to give you a sense of the short-term nature of the operation, the average length of stay at the Center for Families during the month of July was 11.2 days. Additionally, as we discussed on the first quarter conference call, we are actively pursuing a child care license to be issued by the Texas Department of Family and Protective Services for our South Texas Family Residential Center following the completion of the rules promulgation process by the State of Texas during the first quarter.

In early May the state faced legal challenges to their authority to issue a child care license to family residential centers. On June 1, a Texas district court judge issued a temporary injunction prohibiting Texas Department of Family and Protective Services from issuing a child care license to our South Texas Family Center. As a result, a child care license cannot be issued to our South Texas Family Residential Center until a full trial is held to evaluate the merits of the case and determine whether the state has the authority to license family residential centers. The trial is preliminarily scheduled to begin on September 26, 2016. And to be clear, this case does not concern ICE ability to use the center to process and meet the urgent needs of apprehended families as it is currently dealing with its clearances by keeping families together.

As mentioned earlier under Flores Settlement during an influx of minors at the southern border, it requires that ICE releases minors as expeditiously as possible, which is the requirement today. However, licensure is of interest of ICE and we will work with them towards the goal of attaining the license. Finally, going back to California, David is going to highlight our current assumptions on California populations in his comments as it relates to our updated guidance. However, I did want to comment on a ballot initiative that is being evaluated by the voters in California this coming November. Called Prop 57 or The Public Safety and Rehabilitation Act of 2016 if passed, it would allow for the following.

First, authorize parole consideration for people with non-violent convictions who complete their full sentence for their primary offense; second, have incentives for people in prison to encourage them to participate in and complete rehabilitation and education programs; third, require the Secretary of Corrections to certify that the regulations implementing these policies protect and enhance public safety; and finally, allow judges to decide whether youth as young as 14 years old should to be tried as an adult. The state's Legislative Analyst's Office or LAO issued a report, which was released last week on Prop 57. Prop 57 will give significant leeway to CDCR Secretary and parole board in how each implements the measures so it's hard to be precise on actual impact. However, the LAO report put the approximate cost savings in the tens of millions of dollars annually on CDCR's annual budget of $10.6 billion.

And as a reminder, our facilities in Mississippi and Arizona are all cell housing versus dormitory housing. This type of housing is suitable for higher custody inmates, which has been very attractive to California since they are limited on this type of capacity within the state. In fact of the nearly 4,900 California inmates housed in our facilities in Mississippi and Arizona, over 85% of them are level 3 or level 4 inmates, which classifies them as medium security or higher custody. Now, I'd like to turn the call over to Dave to cover our second quarter financial performance and review the primary drivers to our updated financial guidance for 2016. Dave?

Thank you, Damon, and good morning, everyone. In the second quarter we generated $0.49 of EPS compared to our May guidance range of $0.44 to $0.46 and $0.04 ahead of the first call consensus estimate. FFO totaled $0.69 per share exceeding our May guidance range of $0.64 to $0.66 and AFFO totaled $0.65 per share, ahead of our May guidance range of $0.61 to $0.63. Per share results exceeded expectations largely due to stronger revenue driven by higher than anticipated inmate populations across numerous facilities as well as revenue from the new lease with the State of Oklahoma at our North Fork Correctional Center we announced May 6. As in the first quarter, federal revenue was particularly strong in the southwest during the second quarter.

Financial results for the quarter exceeded expectations even though they fell short of expectations by $0.01 per share at our newly constructed Trousdale Turner Correctional Center as we generated a $0.01 per share of net operating income with that facility, but had forecasted $0.02 per share during the quarter. We began the ramp of the 2,552-bed Trousdale facility in January and expected the ramp to be completed by the end of the second quarter. However, with the support of our government partner, we paused the ramp during the second quarter to help ensure a safe and orderly operational activation according to our standards. We resumed the ramp last month and now expect the ramp to be complete by the end of the third quarter of 2016. Nevertheless, our forecast reflects certain incremental expenses associated with start-up operations continuing into the fourth quarter of 2016.

As a result, we don't expect normalized operations until the first quarter of 2017. The pause in ramp and higher start-up expenses, which are very difficult to predict for a facility ramp of this size, resulted in a reduction to our full-year guidance of approximately $0.05 per share compared with the guidance we issued last quarter. The most significant factors affecting the second quarter results compared with the prior year quarter include the decline in inmate populations from the State of California, refinancing short-term debt with long-term debt in the third quarter of 2015, higher depreciation primarily resulting from placing into service our new Trousdale facility, and the previously announced termination of the contract with the Federal Bureau of Prisons at our Northeast Ohio Correctional Center effective May 31, 2015.

The decline in California populations, which were consistent with our projections, had the largest impact of these items and contributed to a reduction in per share results by about $0.06 from the prior year quarter. The negative financial impact of these events was partially offset by a full quarter of operations at our South Texas Family Residential Center, which completed ramping up during the second quarter in the prior year, increased populations from the activation of our new Otay Mesa Detention Center in the fourth quarter of 2015, and acquisitions totaling $214 million for 23 residential reentry centers between the end of the second quarter of 2015 and the end of the second quarter of 2016. Our balance sheet remained strong with leverage of 3.5 times and fixed charge coverage of 7.2 times using trailing 12 months.

At June 30, we had $71 million of cash on hand and $446 million of availability on our $900 million revolving bank credit facility and no debt maturities until 2020. As we mentioned last quarter, in February we put in place an at-the-market equity distribution program which is a popular vehicle used by REITs and other companies to efficiently raise equity capital from time to time. We believe the program, commonly known as an ATM program, is a perfect tool to match fund proceeds with M&A activity and other capital needs in order to manage our capital allocation strategy. We target a leverage ratio of between 3 times and 4 times and have operated within this range or lower over the past decade. Although we have modest capital expenditure commitments, we continue to pursue M&A activity and have an active pipeline as Damon mentioned in his remarks.

As our leverage increases to fund these opportunities, the ATM program is available for managing our targeted leverage ratios. We did not utilize the ATM during the first or second quarters. For the remainder of 2016, the only substantial capital commitment we have is for the expansion of our 1,596-bed Red Rock Correctional Center pursuant to a new contract that was awarded in late December 2015 from the State of Arizona for an additional 1,000 inmates. As we had approximately 1,000 inmates at the facility pursuant to a pre-existing contract with Arizona, we are expanding the design capacity of the facility to 2,024 beds at an estimated total cost of $35 million to $38 million including additional space for inmate reentry programming and support services. We have invested $22.8 million in this expansion through the end of the second quarter.

Construction is expected to be completed later in the fourth quarter of 2016 although we began receiving inmates under the new contract last month and expect the ramp to last through January 2017. Moving next to a further discussion of our guidance. As indicated in the press release, adjusted EPS guidance for the full year is a range of $1.85 to $1.89, up from $1.81 to $1.87 from our May guidance while Q3 adjusted EPS guidance is a range of $0.47 to $0.48. Full-year normalized FFO per share guidance is a range of $2.64 to $2.68, up from $2.60 to $2.66 from our May guidance. And full-year AFFO per share guidance is $2.53 to $2.57 compared with $2.53 to $2.59 from our May guidance. Note that because the cash flow from the new lease with Oklahoma in our North Fork facility is currently lower than the amount of straight line revenue recognized under Generally Accepted Accounting Principles, the impact of this lease to AFFO is lower than the amount flowing through net income and FFO.

The impact is included and can be seen in our calculation of AFFO presented in the supplemental disclosure report. This cash flow adjustment flips and the adjustment to AFFO will be more than the impact to net income and FFO beginning in 2018 when cash rents exceed the amount of revenue under GAAP reporting. Our updated guidance reflects the [Q2 be] offset by $0.04 reduction to our previous guidance during the second half of the year at the Trousdale facility. Our FFO and EPS guidance also includes $0.03 during the second half of the year for the new lease with the State of Oklahoma that was executed after we issued our prior guidance. Our guidance also includes $0.01 reduction in the fourth quarter for the non-renewal of the contract with the BOP at our Cibola County Corrections Center, which was not in our previous guidance.

As a reminder, our guidance also includes start-up expenses incurred during the second half of $0.01 to $0.02 per share for the ramp of the new contract at our Red Rock facility, which has always been in our guidance. We are projecting continued stable inmate populations from the State of California averaging a little under 5,000 inmates for the remainder of the year. This projection is consistent with the state's final budget approved in June, an updated report of inmate population projections released by the state in January, and is unchanged from our prior forecast. Average daily inmate populations from California were 4,900 during the second quarter of 2016, which as I mentioned was consistent with our forecast and is comparable to the average during the first quarter.

As a reminder, we have a contract with the State of California for up to 6,562 out-of-state inmates expiring June 30, 2019 should they have the need for additional inmates over that time period. The contract includes renewal options to extend beyond the expiration by mutual agreement. During the second quarter, we also extended the lease with California for our in-state California City facility to November 2020, two years longer than the lease provided in exchange for up to $4 million of certain facility and other tenant improvements. The extension also provides California with the unilateral right to extend the lease for two additional two-year periods through November 30, 2024 with indefinite two-year renewal options thereafter upon mutual agreement.

Our full-year guidance includes a total of $0.02 to $0.03 per share generated for the acquisition of CMI completed on April 8 and of the Long Beach Community Corrections Center completed on June 10. Although we continue to pursue a number of attractive investment opportunities, particularly in the reentry space, our guidance does not include any new M&A activity beyond these acquisitions. The magnitude and timing of our M&A activities is difficult to predict and therefore we will update our guidance on a quarterly basis if and when we successfully complete such transactions. Our guidance does not include any new contract awards or contract losses beyond those previously announced. Our guidance also does not include the impact of any modification to our contract at the South Texas Family Residential Center, which as Damon mentioned, we are discussing with ICE.

We continue to work with ICE to reduce their cost of the contract and address policy changes they have implemented since the beginning of the contract. It would be inappropriate to elaborate any further while those discussions are ongoing and we do not know when such changes would become effective. Finally, last quarter we were awaiting new regulations from the Department of Labor that would increase the total compensation required to exempt employees from qualifying for overtime. Those regulations which increase the number of employees eligible for overtime pay were issued in May. We are currently in the process of determining the impact the new regulations will have on our payroll costs, but it is not expected to be material in 2016 as the effective date is not until December 1, 2016.

Once again we have provided EBITDA guidance in our press release, which enables you to calculate our estimated effective tax rate of approximately 5% and provides you with our estimate of total depreciation and interest expense for both the third quarter and full year. We expect G&A expenses to be slightly more than 5.5% of total revenue. I will now turn the call back to Damon for closing comments before opening the lines for questions.

Thanks, Dave. And thank you again for calling into today's conference call and let me now turn the call over to the operator for the question-and-answer session.

(Operator Instructions) Michael Kodesch, Canaccord.

Also really appreciate all the color on what's going on in South Texas and Family Residential. First of all, just a clarification on guidance. For your Cibola County contract that was lost, in guidance are you guys assuming that FFO contribution there is kind of loss on September 30 or do you have some kind of other -- what's the ramp down of that?

That's correct. That contract has an occupancy guarantee and we're right now modeling the non-renewal effective September 30 so a vacant facility for all of Q4 and that was $0.01 for the quarter.

And then on that contract, what's the annual FFO impact? I'm sorry if I missed that.

It's about $0.04 impact. So, our $0.01 per share in the fourth quarter is pretty representative for our full year.

Okay. And then just my last question here. Just with all of the other recent residential reentry acquisitions that you've been doing, what percent of EBITDA exposure are you at now relative to the total portfolio on that residential reentry piece?

For the second quarter, it was about $5 million and a little bit more than 4.5% of our total adjusted EBITDA.

(Operator Instructions) Tobey Sommer, SunTrust.

With respect to the South Texas ICE business, while you can comment on the outcomes, do you have an expectation as far as a timeline on either the solicited proposals or the outcome of your existing business with ICE in this regard?

Tobey, this is Damon. So, the procurement required for a proposal to be submitted on July 15 so we've met that timetable and they've got our proposal in hand. As it relates to kind of final negotiations of an agreement, it's really hard to say today when that would be wrapped up. Conversations are ongoing as we speak so I think they'll progress through the month of August, but I couldn't necessary circle the dates when we hope to get completion in those discussions.

But it's a relatively near-term thing, is this a kind of solicitation that doesn't necessarily go to a formal RFP afterwards, but is kind of done through alternative inter-government type transactions?

A few parallel paths here. So, they did the procurement basically opened it up to solicit proposals. We participated in that process. Our view on that was they were trying to really kind of open it up to see what other opportunities are out there to help services requirement and then they also in a second path engaged us directly and those conversations are ongoing today. So again through the process that we're undertaking with them, we really haven't circled the date and they haven't circled the date when they hope to conclude those discussions, but they are ongoing. So I'd say maybe a little more to your question, it's a little more I think kind of faster paced conversation than maybe a typical procurement process.

Okay. Could you update us on [CAR 2016] and your current view of what the timing of that might be this year? Thanks.

So being in first week of August and most of the contracts let's just say in this procurement as a reminder, it was advertised for 10,800 beds. We had the lowest quantity of the total; I think Geo's got over 60%, MTC's got about 2,000 beds, and we've got about 1,400, 1,500 beds up for rebid. So, we've got the smallest of the total. But most of the contracts, ours included, expire first or second quarter of 2017. So to your question, we think a decision could happen potentially third quarter maybe it slips into the fourth quarter, but we think a decision is probably likely in that timetable since most of these contracts expire early next year.

In Trousdale, kind of what you described about the pause, is that generally a function of the national economy just being so strong?

That's exactly right. So we spend a lot of time like we do for any new activation understanding the labor market, understanding kind of what the dynamics are good, bad, and different. And Tobey, the national area just has been a very hot market here locally within Davidson County and the City of Nashville. So, that has had some ripple effects to the labor market where Trousdale Turner is located. So, we are on that. We have a constant conversation with the Tennessee Department of Corrections and we felt it was appropriate to hit the pause button on the ramp which they were extremely supportive because we were both aligned to the fact that we want a safe and secure facility through the ramp-up period. So with that, we worked through that process, put a couple of things in place to help with the labor market recruitment, and felt like probably about late June we were in a really, really good place to go ahead and start to ramp back up with Tennessee.

On the California ballot initiative, I guess any kind of color you could give there about an expectation for a potential impact or how CDCR may interpret and implement this. And maybe you could contextualize it for us with the historical ballot initiatives, is this the kind of thing that we don't really learn until after it passes if it does? Thanks.

So, there's a couple good questions there. So as I said in my remarks the State of California, they got $10.6 billion budget. And with LAO coming out with their report saying it's in the tens of million of dollars so that means either $10 million or maybe up to $100 million, I thought they're a pretty small percentage of the total overall budget. So, that's I guess one way to look at it. The second is that we think about potential impact on our operations. I was trying to provide a little color there in my remarks, we've got two facilities that are all cell very secure facilities that are suitable for medium security or maximum security inmates. And as I think you know, Tobey, that has been a real premium for that type of capacity I should say within the State of California. So with Prop 47 focused primarily really almost exclusively for non-violent convictions and with that number from LAO saying it's only tens of million dollars impact on a $10.6 billion budget for CDCR and then also knowing how our capacity is very complementary for some of the challenges they had in state for higher custody inmates. You can't say definitively, but the impact appears it could be fairly minimal.

Okay. You're having a lot of conversations on the real estate only solutions and you have some transactions to be consummated. At this point, would you expect to be able to consummate another opportunity over the next year?

Yes. We've got really good conversations with state and local jurisdictions, getting a couple across the finish line like Cal City and North Fork are very hopeful. So we're not just talking about in concept, but we could actually point to California and Oklahoma saying this is proof of concept and here are the reasons why we were successful in those locations and why it's been very, very helpful for them. So having those where we've got that in kind of a marketing book talk to other jurisdictions has been very helpful. So yes, I'd say we feel good about prospects of getting another one across the finish line here in the next 12 months.

Dave, you mentioned the overtime rules and how it doesn't have much of an impact because it won't come into effect until the end of the year. Is there any way to gauge an annual impact on 2017?

Not yet, Toby. We're going through that analysis right now. We've engaged an outside consultant to help us. It's a lot of data and a lot of sensitivity analysis on what ifs and there's a lot of strategies to deploy about what can you do with compensation amounts, will they pull them up to the new threshold or try to deal with issues on how much overtime people will work. So at this point, it's just too early to say. We should have a better sense in the upcoming quarters.

Andrew Berg, Post Advisory Group.

One, just going back to South Texas. Can you comment at all whether as part of the negotiations the thought process is to potentially adjust compensation, but also extend the contract for a longer period of time?

I think that definitely is all part of the conversation. So yes, that's a little bit to my point earlier about back in 2014 when they approached us, they were definitely focused on dealing with the crisis on the border and so I think they were thinking short-term and with that, wanted to get something up and running really quickly. So we think it is an encouraging sign that they've come out not only with their procurement, but they've engaged us and that they're looking towards the future of having this requirement longer term.

Okay. And then with respect to Cibola, can you provide any color regarding the potential revenue or EBITDA impact? Is it safe to just look at compensated mandate and apply it towards that facility and that's the potential loss which on the grand scheme of things seems like it's not a tremendously negative impact on you guys?

That's a fair statement. And as I mentioned earlier, it's probably about $0.04 per year.

And gentlemen, it appears we have no further questions. I'll return the floor to you for any additional or closing remarks.

All right. Thank you so much for participating in today's call and as always to our investors, thank you so much for your investment within CCA and we look forward to giving you an update a little later in the year. Thank you.

And this will conclude today's program. Thanks for your participation. You may now disconnect and have a great day.